The Real Estate Business Explained

Selling your  home is one of the biggest financial decisions of your life. Unfortunately, the vast majority of sellers know nothing about marketing or how homes are sold. This leads to millions of sellers each year getting far less for their homes than they should. You must choose the best way to sell your home and protect your investment and we hope to help you do just that!

Before you can choose how to sell your home, you must understand what actually sells a home. Most people believe that homes sell because of print ads however, the fact is that in today’s market only 10% of homes sell as a result of print marketing, and only 2% of those are sold as a result of someone calling on the house featured in the ad. This may sound a little strange, so let me explain. Real estate companies do not advertise homes to sell them! In fact, there is only a 2% chance that a home will sell as a result of a buyer finding it in an ad! In most instances when a call is received on an ad, the caller will find something about the house that doesn’t work for them prompting the real estate agent who took the call to direct them to another home which does in fact meet the caller’s specific needs. On the flip side of this, there is actually only about a 10% chance that the home will eventually sell as a result of someone calling about a different house, and then be directed towards the home in question. This is why people who try to sell their own homes get so frustrated! They have limited themselves to just 2% of the buying market! They can’t even tap into the 10% that sell from buyers calling in on other houses!

So what else sells homes? Well approximately 3% of homes will sell as a result of For Sale Signs, 3% from Open Houses, and 5% from fliers and post cards. That said, the total chance your home will be sell as a result of one of these traditional methods is about 21%.

So why do real estate companies even advertise? Well, real estate companies advertise for three different reasons, and none of the reasons have anything to do with selling the house in the ad! (1) The main reason they advertise is to get future home listings. Real estate companies realize that when homeowners make the decision to sell, they often look for the company doing the most advertising in their community, and assume that company has experience selling homes in their market and will do the most to market their home. (2)The second reason real estate companies advertise is to get buyers. The more houses they advertise in print and news publications, the higher the volume of calls from buyers and thus the more transactions the company will be a part of. While many of these transactions will involve homes listed by other companies, the real estate company doesn’t care, just as long as the buyer finds the home they’re looking for and it receives a commission on the transaction. (3) Finally, real estate companies advertise because the homeowners expect their homes to be advertised. It’s unlikely these sellers understand that this gives them only a 10% shot at the market, but the real estate companies understand that their clients will get thoroughly upset if they don’t see their home advertised in the Sunday paper every week.

If conventional methods sell just 21% of homes, what makes up the other 79%? The answer is internet marketing and realtor-to-realtor contact. More specifically here’s what sells homes: an agent with a strong web presence, featured website listings on sites like Realtor.com, Trulia.com, Zillow.com, the Multiple Listing Service, realtor to realtor contact, lots of phone calls, marketing meetings, and  broker e-mail lists. These are the new tools of our trade and this is what sells real estate in today’s market. Not passing out fliers. Not open houses. Not yard signs. Not quarter-page full-color ads in your local newspaper. These things certainly help but more than anything else they are done to make sellers happy, get more sellers in the future, and build a larger buyer pool, however 79% of home sales occur because of realtor-to-realtor contact and internet marketing. That’s not to say that the other 21% should be ignored as every opportunity to expose the property should be utilized, but with every listing there is a finite marketing budget and it’s important to put those dollars to use in the most effective manner possible!

There is no national conspiracy to set commissions at 6%! Homes sell because of realtor-to-realtor contact and extensive internet marketing, and it’s important to understand how commissions work. Some people believe that after a home sells the listing agent takes a big bag of money equal to 6% of the home’s value, and deposits it into his or her private bank account. While it would be nice for us if this were true, this is certainly not the case. When we realtors sell a home at 6%, we plan to make about a 1% profit. Generally 3% goes to the buyer agent and 3% goes to the listing agent. Of the 3% that goes to the listing agent, approximately 1% of this will be taken by the broker (that is the listing agent’s company), about 1% will be spent on advertising, and the listing agent will ultimately receive a profit of approximately 1% for making the whole thing happen.

So what options do you have for selling your home? Three actually… First, you can sell your home on your own. Secondly, you could list with a discount broker. Finally, you could list with a full-service real estate company. Using an average agent should net you about 14.9% more in the final selling price than if you sold For-Sale-By-Owner. Using a good agent should benefit you even more. If you decide to sell on your own, you have an 16% chance of actually selling your home, however, the overwhelming majority of the 17% that sell on their own are selling directly to a family member or friend. The remaining 84% of For-Sale-By-Owners will either eventually give up and use a Realtor, sell for below market value, or stop trying to sell the home out of frustration. Owner’s who attempt to sell on their also put themselves in considerable legal risk. Ohio is one of the most litigious states in the country and there are multiple disclosures and many procedures that you must follow, by law, when selling a home. Last year in Ohio there were over 11,000 real estate lawsuits, and 1/3 of them involved a For-Sale-By-Owner (even though For-Sale-By-Owner properties make up less than 5% of all transactions). Please don’t try to sell your home yourself, especially in Ohio.

The next worse thing you can do is use a discount broker. Discount brokers only sell 4% of all the properties that make it all the way through the escrow process. Now, don’t get me wrong, discount brokers get far more than 4% of the listings, but many of their listing will expire or have to be reduced in price for the property to sell. Once again, by trying to save a little on commission, you will be hurting yourself when it comes to the final selling price. Discount brokers who will sell your property for a 4% or 5% commission do so by making drastic cuts to their advertising budgets. Cutting out the 1% on advertising may not seem like a lot but as we discussed earlier this is typically the total amount allocated towards the marketing budget! Another option is cutting the commission offered to the buyer’s agent however, this is a really bad idea! Think about it, why would an agent want to show your property at a lower commission when they could sell other properties for the full 3%? Reducing the buyer’s agent’s commission means less showings, fewer offers, a longer selling time, and a lower final selling price.

But it gets even worse, some companies say they will sell your home for only a 1.5% or 2% commission. These places do nothing more than place their listings on the local Multiple Listing Service and what seller’s who go this route usually end up with is a bad experience as these companies rely solely on other agents to sell their listings, but offer the buyer’s agent a reduced commission of 1% or less! How many agents are going to show and attempt to sell a listing offering a 1% commission when they can sell another property and earn the full 3% commission? So you see by attempting to save a few percentage points on a sales commission these sellers end up surrendering a significant amount of their home’s value, that’s if their home actually sells! Once again, there is no conspiracy that keeps the national average for commissions at 6%; that’s simply what it takes to sell a home right!

So how do you make the most money and stay protected? It’s no secret, like the customers in over 90% of all successful transactions, the best way to stay financially and legally sound is to hire a full-service brokerage. A full-service brokerage is most likely to fetch you the highest sales price, get you the most money for your home, protect your legal interest and make the total sales process as smooth as possible. Full-service brokers usually have home warranty plans, referral networks, teams of contractors, inspectors and appraisers, in-house mortgage departments, and technological tools that help the whole process along!

If you’re considering buying or selling a home in Columbus, please visit our website at www.JasonOpland.com,  email us or better yet give us a call  at 614.332.6984.

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